Dear Estelle. College is a long way off for our family. We have two elementary-aged children. What advice do you have for us to prepare for the future so we don’t come up short financially like so many parents? We both have excellent jobs but we’re at that stage where we have lots of expenses like buying a home and sending our children to a private school, which rivals the cost of college. D&S Frank
How refreshing you’re thinking of your children’s college needs when they are still young. Too many people neglect the reality of college costs until their children are in high school. No doubt you’ve heard of the 529. It is the college savings plan offered by the federal government that provides some excellent tax benefits. You don’t pay taxes on your earnings in the account as long as you use them for qualified higher-education expenses, including room and board. This rule expires at the end of 2010, but there’s strong support on Capital Hill to extend it. The tax benefits are trickier at the state level. Many states allow a tax break for residents’ contributions to the state’s own plan. A few will give deductions for deposits in any state’s plan. For more information, be sure to visit savingforcollege.com and click on “529 Plans.” This site will give you a comprehensive summary of the plans available. It’s never too early to begin utilizing this tool to save for your children’s college expenses. When your parents ask what they can get for your children as Christmas or birthday gifts, be sure to mention the “529.” Grandparents are frequently in a position to assist in funding college educations. Starting early can see the dollars multiply.